MIS 373 Basic Operations Management Learning Objectives After this lecture students will be able to Explain what aggregate planning is and how it is useful Identify the variables decision makers have to work with in aggregate planning ID: 659725
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Slide1
Aggregate Planning
Chapter 11
MIS 373: Basic Operations ManagementSlide2
Learning Objectives
After this lecture, students will be able to
Explain what aggregate planning is and how it is useful.
Identify the variables decision makers have to work with in aggregate planning
.
Describe some of the graphical and quantitative techniques planners use.Prepare aggregate plans and compute their costs.Discuss aggregate planning in services.
MIS 373: Basic Operations Management
2Slide3
Motivations
McDonald's
Do you need to know the demand for each burger to plan your labor force?Slide4
The Planning Sequence
MIS 373: Basic Operations Management
Long-term planning
Intermediate-term planning
Short-term detailed planning
4Slide5
The Concept of Aggregation
Aggregate planning is essentially a “big-picture
” approach to planning. avoid focusing on individual products or services
focus
on a group of similar products or
servicesFor purposes of aggregate planning, it is often convenient to think of capacity in terms of labor hours or machine hours per period, or output rates (barrels per period, units per period), without worrying about how much of a particular item will actually be involved.MIS 373: Basic Operations Management
5Slide6
Aggregate Planning
The main idea behind aggregate planning:
Aggregate planning translates business plans into rough labor schedules and production plans
Issues to
consider
for aggregate planningProduction rate: “aggregate units” per worker per unit timeWorkforce level: available workforce in terms of hoursActual production: Production rate x Workforce levelInventory: Units carried over from previous periodsCosts: production, changing workforce, inventory
MIS 373: Basic Operations Management
6Slide7
Aggregate Planning
What does aggregate planning do?
Given an aggregate demand forecast , determine production levels, inventory levels, and workforce levels, in order to minimize total relevant costs over the planning
horizon
Why
do organizations need to do aggregate planning?It takes time to implement plans (e.g. hiring).It is not possible to predict with accuracy the timing and volume of demand for individual items
.Planning is connected to the budgeting process
which is usually
done annually on an aggregate
(e.g., departmental) level.It can help synchronize flow throughout the supply chain; it affects costs, equipment utilization; employment levels; and customer satisfactionMIS 373: Basic Operations Management7Slide8
Matching
Demand
and SupplyProactive
Alter demand to match supply (capacity
)
Among other approaches, we can alter demand by simply changing the price.ReactiveAlter supply (capacity) to match demandThrough capacity planning and aggregate planningMixedSome of each
MIS 373: Basic Operations Management
8Slide9
Demand Options
Pricing
Used to shift demand from peak to off-peak periodsPrice elasticity is importantPromotionAdvertising and other forms of promotion
Issue: response rate and response patterns. Less control over timing of demand (may worsen the problem by bringing demand at the wrong time).
Back orders (delaying order filling)
Orders are taken in one period and deliveries promised for a later periodPossible loss of sales, increased record keeping, lowered customer service levelNew demandOffer different products/services during off-peak periods.Yield (Revenue) ManagementMaximizing revenue by using a variable pricing strategy. Prices are set relative to capacity availability.
MIS 373: Basic Operations Management
9Slide10
Supply Options
Hire and layoff workers
May have upper or lower limitUnions/internal policies may prohibit layoffsSkill levelsAssociated costs (e.g., recruiting, training, severance-pay, morale)
Overtime
Overtime may result in lower productivity, poorer quality, more accidents, increased payroll costs
Part-time workersUsually low-to-moderate job skillsIndependent-contractorsInventoriesProduce in one period and sell in anotherCosts: holding and carrying cost, money tied up in inventory, insurance, obsolescence, deterioration, spoilage, breakage etc.SubcontractingLess control over output. Quality problems. Higher
costsMIS 373: Basic Operations Management
10Slide11
Aggregate Planning Supply Strategies
Level
capacity strategy: Maintaining
a
steady rate of regular-time output;
variations in demand are met by using inventories or other options such as overtime, part-time workers, subcontracting, and backordersChase demand strategy:
Matching capacity to demand; the planned output for a period is set at the expected demand for that period.
MIS 373: Basic Operations Management
11Slide12
Level strategy
Capacities are kept constant over the planning horizonAdvantagesStable output rates and workforce
DisadvantagesGreater inventory (or other) costs
MIS 373: Basic Operations Management
12Slide13
Chase strategy
Capacities are adjusted to match demand requirements over the planning horizon
AdvantagesInvestment in inventory is lowLabor utilization in highDisadvantages
The cost of adjusting output rates and/or workforce levels
MIS 373: Basic Operations Management
13Slide14
Choosing a Strategy
Important factors:Company policy
Constraints on the available optionse.g., discourage layoffs, no subcontracting to protects secrets, union policies regarding over timeFlexibility
Chase flexibility may not be present for companies designed for high steady output (e.g., refineries, auto assembly)
Cost
Alternatives are evaluated in term of cost (while matching demand within the constraints).MIS 373: Basic Operations Management14Slide15
Example #1:
Chase demandBeginning Inventory: 0 units
Beginning Workforce: 5 workersProduction Rate: 10 units/worker/periodRegular Production Costs: $10/unitInventory Costs: $5/unit/periodHiring Cost: $200/worker
Firing Cost: $100/worker
MIS 373: Basic Operations Management
Period
1
2
3
45Demand403020506015Slide16
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
End Inventory
# Hired
# Fired
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
16
Beginning Inventory
Time Periods
# Hired in the beginning of a period
# Fired in the beginning of a periodSlide17
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
# Hired
# Fired
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
17
Recall the chase strategy:
Capacities
are adjusted to match demand requirements over the planning horizonSlide18
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
# Hired
0
# Fired
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
18Slide19
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
# Hired
0
0
# Fired
1
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
19Slide20
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
# Hired
0
0
0
# Fired
1
1
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
20Slide21
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
0
# Hired
0
0
0
3
# Fired
1
1
1
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
21Slide22
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand4030
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
0
0
# Hired
0
0
0
3
1
# Fired
1
1
1
0
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
22Slide23
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
0
0
0
# Hired
0
0
0
3
1
4
# Fired
1
1
1
0
0
3
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
23Slide24
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
0
0
0
# Hired
0
0
0
3
1
4
# Fired
1
1
1
0
0
3
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
24
One defining characteristics of the chase strategy is that we don’t have end inventory.
All we produced are/were sold.
No holding costSlide25
Example #1: Chase demand
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
30
20
50
60
200
End Inventory
0
0
0
0
0
0
# Hired
0
0
0
3
1
4
# Fired
1
1
1
0
0
3
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
TC=Production + Holding + Hiring + Firing
=
200*10 +
0
+
4*200 + 3*100 = $3,100
25Slide26
Exercise Problem
Perform aggregate planning using the chase strategy:
Beginning Inventory:
10
units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs:
$10/unit/period
Hiring Cost:
$100/worker
Firing Cost:
$200/worker
Period
1
2
3
4
5
Demand
50
40
30
30
40Slide27
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
End Inventory
# Hired
# Fired
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning InventorySlide28
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
# Hired
# Fired
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
We only produce 40 units because there are 10 units beginning inventory that we can use.
So, we can still meet
the demand
of 50 units.Slide29
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
0
# Hired
0
# Fired
1
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
The beginning workforce is 5 workers.
Since we only produce 40 units in this period and each worker can handle 10 units in a period
, we only need 4 works here.
We hence fire 1 at the beginning of this period. Slide30
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
0
0
# Hired
0
0
# Fired
1
0
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/workerSlide31
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
0
0
0
# Hired
0
0
0
# Fired
1
0
1
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/workerSlide32
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
0
0
0
0
# Hired
0
0
0
0
# Fired
1
0
1
0
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/workerSlide33
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand50
403030
40
190
Production
40
40
30
30
40
180
End Inventory
0
0
0
0
0
0
# Hired
0
0
0
0
1
1
# Fired
1
0
1
0
0
2
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/workerSlide34
Solution:
chase strategy
10
1
2
3
4
5
Total
Demand5040
303040
190
Production
40
40
30
30
40
180
End Inventory
0
0
0
0
0
0
# Hired
0
0
0
0
1
1
# Fired
1
0
1
0
0
2
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
TC=Production + Holding + Hiring + Firing
= 180*10
+
5*10
+
1*100 +
2*200 Slide35
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
End Inventory
# Hired
# Fired
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
35Slide36
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
# Hired
# Fired
Total demand=40+30+20+50+60=200
Production per period=200/5=40
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
36
Recall the level strategy:
Capacities
are kept constant over the planning
horizon. So, Slide37
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
# Hired
0
# Fired
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
37Slide38
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
# Hired
0
# Fired
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
38
Fire 1 worker in this period because 4 workers are sufficient to produce 40 units in a period.Slide39
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
# Hired
0
0
# Fired
1
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
39Slide40
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
# Hired
0
0
0
# Fired
1
0
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
40Slide41
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
# Hired
0
0
0
0
# Fired
1
0
0
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
41Slide42
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
# Hired
0
0
0
0
0
# Fired
1
0
0
0
0
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
42Slide43
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
43Slide44
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
44
One defining characteristics of the level strategy is that we don’t need to adjust capacity (here, labor force), except for the initial period. Slide45
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
Beginning Inventory: 0 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory
Holding Costs
: $5/unit/period
Hiring Cost: $200/worker
Firing Cost: $100/worker
45
TC=Production + Holding + Hiring + Firing
But, how to calculate the holding cost?
Average inventory in a periodSlide46
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
Average Inventory
0
5
20
25
10
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
We can estimate the holding cost by considering the average inventory in each period.
Regular
Production Costs: $
10/unit
Inventory
Holding Costs
:
$
5/unit/period
Hiring Cost: $
200/worker
Firing Cost: $100/worker
46
=(
0
+
10
)/2
=(
10
+
30
)/2Slide47
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
Average Inventory
0
5
20
25
10
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400
TC=Production + Holding + Hiring + Firing
Regular
Production Costs: $
10/unit
Inventory
Holding Costs
:
$
5/unit/period
Hiring Cost: $
200/worker
Firing Cost: $100/worker
47
=(
0
+
10
)/2
=(
10
+
30
)/2Slide48
Example #2: Level Capacity
MIS 373: Basic Operations Management
0
1
2
3
4
5
Total
Demand40
30
20
50
60
200
Production
40
40
40
40
40
200
End Inventory
0
10
30
20
0
60
Average Inventory
0
5
20
25
10
60
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
TC= 200*10 + 60*5 + 0*200 + 1*100 = $2,400
TC=Production + Holding + Hiring + Firing
Regular
Production Costs: $
10/unit
Inventory
Holding Costs
:
$
5/unit/period
Hiring Cost: $
200/worker
Firing Cost: $100/worker
48
=(
0
+
10
)/2
=(
10
+
30
)/2Slide49
Exercise Problem
Perform aggregate planning using the level strategy:
Beginning Inventory:
10
units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs:
$10/unit/period
Hiring Cost:
$100/worker
Firing Cost:
$200/worker
Period
1
2
3
4
5
Demand
50
40
30
30
40
Two additional assumptions:
Unmet
demands
in a period can
be held
and fulfilled in a future
period
.
There is no cost associated with unmet demands.Slide50
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
End Inventory
Avg. Inventory
# Hired
# FiredSlide51
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
Total demand=190
Total
demand=190 – 10 = 180
Production per
period=180/5=36
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
Avg. Inventory
# Hired
# FiredSlide52
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
Avg. Inventory
3
# Hired
0
# Fired
1
By assumption
#1, unmet
demands in a period can be held and fulfilled in a future
period. So, we keep track on the unmet demands, and try to fulfill them in a future period.Slide53
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
Avg. Inventory
3
# Hired
0
# Fired
1
Avg. inventory = [10 + (-4)]/2 = 3Slide54
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
-8
Avg. Inventory
3
-6
# Hired
0
0
# Fired
1
0
-8 = (-4) + (-4)
Unmet demand from period #1 and from period #2Slide55
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
-8
-2
Avg. Inventory
3
-6
-5
# Hired
0
0
0
# Fired
1
0
0Slide56
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
-8
-2
4
Avg. Inventory
3
-6
-5
1
# Hired
0
0
0
0
# Fired
1
0
0
0Slide57
Solution:
chase strategy
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
-8
-2
4
0
Avg. Inventory
3
-6
-5
1
2
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/workerSlide58
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
Beginning Inventory
10
1
2
3
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
-4
-8
-2
4
0
Avg. Inventory
3
-6
-5
1
2
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
By assumption #2, there is no cost associated with unmet demand (i.e., negative inventory has no costs).
TC=Production + Holding + Hiring + Firing
= 180*10
+
10*(3+1+2) + 0 + 1*200 = $2,030Slide59
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
10123
4
5
Total
Demand
50
40
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
Avg. Inventory
# Hired
# Fired
Tim suggested another way to solve this problem.
Pushing unmet demands to its next periodSlide60
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
1012
3
4
5
Total
Demand
50
40
44
30
30
40
190
Production
36
36
36
36
36
180
End Inventory
0
Avg. Inventory
5
# Hired
0
# Fired
1
Tim suggested another way to solve this problem.
Pushing unmet demands to its next period
Instead of -4 end inventory, here we have 0.
See that the demand for period #2 increase from 40 to 44.Slide61
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
1012
3
4
5
Total
Demand
50
40
44
30
38
30
40
190
Production
36
36
36
36
36
180
End Inventory
0
0
Avg. Inventory
5
0
# Hired
0
0
# Fired
1
0Slide62
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
1012
3
4
5
Total
Demand
50
40
44
30
38
30
32
40
190
Production
36
36
36
36
36
180
End Inventory
0
0
0
Avg. Inventory
5
0
0
# Hired
0
0
0
# Fired
1
0
0Slide63
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
1012
3
4
5
Total
Demand
50
40
44
30
38
30
32
40
190
Production
36
36
36
36
36
180
End Inventory
0
0
0
4
Avg. Inventory
5
0
0
2
# Hired
0
0
0
0
# Fired
1
0
0
0Slide64
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
1012
3
4
5
Total
Demand
50
40
44
30
38
30
32
40
190
Production
36
36
36
36
36
180
End Inventory
0
0
0
4
0
4
Avg. Inventory
5
0
0
2
2
9
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1Slide65
Solution:
chase strategy
Beginning Inventory: 10 units
Beginning Workforce: 5 workers
Production Rate: 10 units/worker/period
Regular Production Costs: $10/unit
Inventory Costs: $10/unit/period
Hiring Cost: $100/worker
Firing Cost: $200/worker
10123
4
5
Total
Demand
50
40
44
30
38
30
32
40
190
Production
36
36
36
36
36
180
End Inventory
0
0
0
4
0
4
Avg. Inventory
5
0
0
2
2
9
# Hired
0
0
0
0
0
0
# Fired
1
0
0
0
0
1
TC=Production + Holding
+ Hiring + Firing
= 180*10
+
10*9
+ 0 + 1*200 = $
2,090
While the TC number is different, this approach seems more intuitive than the previous approach, especially on the parts about inventory. Slide66
Aggregate Planning in Services
The aggregate planning process is different for services in the following ways: Most services cannot be inventoried
Demand for services is difficult to predictCapacity is also difficult to predictService capacity must be provided at the appropriate place and
time
Labor is usually the most constraining resource for services
MIS 373: Basic Operations Management66Slide67
Aggregate Planning in Services
Hospitals:allocate funds, staff, and supplies to meet the demands of patients for their medical services
Restaurants:smoothing the service rate, determining workforce size, and managing demand to match a fixed capacityPerishable inventory
Airlines:
complex due to the large number of factors involved (planes, flight & group personnel, multiple routes, airports etc.)
Capacity decisions must also take into account the percentage of seats to be allocated to various fare classes in order to maximize profit or yield (Revenue Management)MIS 373: Basic Operations Management67Slide68
Key Points
An aggregate plan is an intermediate-range plan for a collection of similar products or services that sets the stage for shorter-range plans
.Two aggregate planning supply strategies are 1) chase demand strategy and 2) level capacity strategy.
MIS 373: Basic Operations Management
68